Shenwan Hongyuan Group: Optimistic about the improvement of insurance interest rate risk phase, performance exceeds expectations, and has a positive impact on the valuation of the sector.

Shenwan Hongyuan Group released a research report stating that the performance of the insurance sector in the first half of the year exceeded expectations, and it is optimistic about the improvement in interest spread risk phase and the third-quarter performance of some institutions exceeding expectations, which could have a positive impact on the valuation of the insurance sector. The reduction in the cost of new liabilities is expected to alleviate interest spread risk and drive NBVM growth. At the same time, it is recommended to pay attention to the full-channel implementation of "reporting and banking integration" to boost NBVM and the positive impact on the liability side of the insurance channel, as well as the improvement in new single policies in the bank insurance channel. Under the significantly pressured profit situation in the third quarter of last year, it is expected that the performance of some insurance companies in the third quarter of 2024 will exceed expectations. The recommended companies include New China Life Insurance (601336.SH), China Life Insurance (601628.SH), PICC P&C (02328), Ping An Insurance (601318.SH), and SUNSHINE INS (06963). Investment performance is outstanding, driving 1H24 profit to greatly exceed expectations. Fair value changes led to a high year-on-year increase, with A-share listed insurance companies' total net profit attributable to the parent company increasing by 12.5% to 171.799 billion yuan, significantly exceeding expectations (expected to increase by 1.0% year-on-year). The growth rate of NBV exceeded expectations, and the deviation in investment and operating experience both made positive contributions, resulting in a bright 1H24 EV growth rate; actively responding to the new "Nine State Regulations" call, the dividend payout ratio of listed insurance companies is in the range of 12.3% to 25.0%. Life insurance: New business is under pressure, significant improvement in NBVM driving unexpected growth in NBV Unexpected NBV growth: A-share listed insurance companies' total NBV increased by 24.1% to 74.481 billion yuan year-on-year (Xinhua did not restate 1H23); new business is under pressure: under the impact of bank insurance "reporting and banking integration" and a high base, A-share listed insurance companies' total new business decreased by 13.7% year-on-year to 385.4 billion yuan; high growth in NBVM: under the influence of bank insurance "reporting and banking integration", expected interest rate adjustments, and channel structure improvement, the average NBVM of A-share listed insurance companies increased by 9.1 percentage points to 16.0% year-on-year. Property insurance: COR exceeded expectations, driving outstanding underwriting profit performance COR exceeded expectations: leading companies actively optimized expenses and product structures, cost control, and risk control strategies were effective, under major disaster challenges, PICC P&C, China Pacific Insurance, and Ping An Insurance achieved comprehensive cost ratios of 96.2%, 97.1%, and 97.8% respectively, with year-on-year changes of +0.4%/-0.8%/-0.2%, all exceeding expectations. Underwriting profit: the three major leading companies' underwriting profit increased by 6.1% year-on-year to 15.243 billion yuan; among them, PICC P&C decreased by 5%, China Pacific Insurance increased by 47.6%, and Ping An Insurance increased by 15.7% year-on-year. Investment performance exceeded expectations, mainly due to the increase in bond market value under the influence of declining long-term interest rates and the rise in stock prices of high dividend target stocks. The average annualized net/total investment return rate of A-share listed insurance companies in 1H24 was 3.4%/4.3%, with a year-on-year change of -0.4%/+0.4%; all companies increased the proportion of stocks classified as FVOCI, further smoothing profit fluctuation. Risk warning: increased market volatility, decline in long-term interest rates, frequent major disasters, and stricter regulatory policies.